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China’s Stocks Drop on Growth, Property Concerns; Vanke Falls

China’s stocks fell, dragging the benchmark index lower for a second time this week, on concern a slowdown in economic growth is deepening and that the government will stick to measures to contain real-estate prices.

China Vanke Co. (000002) and China Merchants Property Development Co. dropped after the Xinhua News Agency said property curbs will remain in place. China Shenhua Energy Co. led declines for coal producers on concerns about the nation’s growth prospects after a former central bank adviser said the economy will have a “lukewarm” performance. Shandong Gold Mining Co. (600547), the second- largest bullion producer, climbed to a seven-month high after Morgan Stanley recommended buying gold miners.

“There won’t a big run-up on stocks because the economy isn’t likely to see a strong V-shaped recovery,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Cyclical stocks will be under pressure because there isn’t a clear sign of a strong pick-up in economic growth.”

The Shanghai Composite Index (SHCOMP) fell 0.1 percent to 2,309.56 at the close. Two stocks declined for every one that gained. The CSI 300 Index (SHSZ300) lost 0.1 percent to 2,557.40. The Bloomberg China- US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.3 percent at the close in New York yesterday.

The Shanghai index has slid 6.1 percent from this year’s high set on March 2 on concern the government isn’t doing enough to stem a decline in economic growth. Stocks in the measure are valued at 10 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Property Measures

China’s housing ministry will stop local governments from easing property policies to support “unreasonable” purchases, Xinhua reported yesterday, citing an unidentified spokesman with the ministry. The housing ministry will maintain the current property-price control policy, Xinhua said.

Vanke, the nation’s largest listed property developer, dropped 1.4 percent to 8.98 yuan. Merchants Property, the third biggest, sank 0.7 percent to 24.41 yuan. Hangzhou Binjiang Real Estate Group Co. fell 0.8 percent to 9.70 yuan.

China’s two-year efforts to limit the risk of a real estate bubble have included higher mortgage and down-payment requirements and restrictions on home purchases in about 40 cities.

The economy will have a “lukewarm” performance and may expand 8.2 percent this year, Li Daokui, a former adviser to the People’s Bank of China, said in a forum in Singapore. The growth rate was 8.1 percent in the first quarter, the slowest pace in almost three years.

Shenhua, the nation’s largest coal producer, dropped 1.3 percent to 25.04 yuan. Datong Coal Industry Co. (601001), the third biggest, lost 0.7 percent to 12.29 yuan. Yanzhou Coal Mining Co., the fourth largest, retreated 1 percent to 21.46 yuan.

Rate Outlook

The Shanghai Composite rose as much as 0.5 percent earlier today on speculation the central bank will cut borrowing costs for the first time since 2008. Thirty-day volatility in the Shanghai Composite was at 15.44 today, near a three-week high. About 6.6 billion shares changed hands in the measure yesterday, 27 percent lower than the daily average this year.

The People’s Bank of China should cut interest rates at an appropriate time to boost confidence in the economy, according to a commentary on the front page of the China Securities Journal today, which is operated by Xinhua. Second-quarter economic growth may be less than 7.5 percent and falling producer prices show some areas face deflation risk, according to the commentary.

Data this weekend are expected to show fixed-asset investment expanded at the slowest pace in a decade in May, inflation matched a two-year low and industrial output grew less than 10 percent for a second month, Bloomberg economist surveys show.

Bleak Data

“If the economic data for May still look bleak, we can’t exclude the possibility that the central bank will cut both lending and deposit rates,” said Shao Jiamin, the Shanghai- based head of fixed income at HFT Investment Management Co., which oversees some 30 billion yuan ($4.7 billion).

China is expected to enter a period of consecutive reserve requirement cuts in the second half, the China Daily reported today, citing Ba Shusong, an economist with the State Council’s Development Research Center. The central bank will need to cut the ratio continuously in the next one to two years, it said. The ratio has been reduced three times since November.

Shandong Gold jumped 6.8 percent to 38 yuan, its highest close since Nov. 17. Zijin Mining Group Co., China’s largest gold producer, rose 2.2 percent to 4.19 yuan.

The Federal Reserve is more likely to buy additional government-backed mortgage securities, also known as quantitative easing, after the pace of U.S. job creation slowed, according to Morgan Stanley and JPMorgan Chase & Co.

“Expectations about QE3 and the recent weakness in the U.S. dollar have boosted gold prices and the underlying stocks,” Chen Binghui, a metals analyst at Northeast Securities Co. in Shanghai, said by phone today. QE3 may fuel inflation, making gold more attractive as an alternative investment. Morgan Stanley reiterated its overweight rating for gold miners.

--Zhang Shidong. With assistance from Judy Chen in Shanghai. Editors: Allen Wan, Darren Boey

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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